Cash Management Fundamentals Flashcards

Which disbursement method allows a company to maximize float by issuing checks drawn on a distant bank?

Answer: Remote disbursement

Remote disbursement intentionally uses a geographically distant bank to extend mail and clearing float, delaying the actual cash outflow.

A company's cash conversion cycle (CCC) is calculated as:

Answer: DSO + DIO - DPO

CCC = Days Sales Outstanding + Days Inventory Outstanding − Days Payable Outstanding, measuring the time cash is tied up in operations.

What is the primary purpose of a lockbox network in cash management?

Answer: To accelerate collection of receivables

A lockbox network routes customer payments to post office boxes near regional banks, reducing mail float and speeding up deposit availability.

Under the Federal Reserve's Regulation CC, what is the maximum hold period a bank may place on a local check for a new account?

Answer: 9 business days

Regulation CC allows banks to impose a 9 business-day hold on checks deposited into new accounts (open less than 30 days).

A sweep account automatically transfers excess balances into which type of instrument at the end of each business day?

Answer: Overnight money market funds or repo agreements

Sweep accounts move idle balances into overnight vehicles such as money market funds or repurchase agreements to earn a return without sacrificing liquidity.

Which metric best measures the efficiency of a company's accounts payable process from a cash management perspective?

Answer: Days Payable Outstanding (DPO)

DPO measures the average number of days a company takes to pay its suppliers, directly reflecting how long cash is retained before disbursement.

Which of the following best describes 'availability float' in the context of bank collections?

Answer: The delay between deposit and when funds are credited as collected

Availability float (also called collection float) is the lag between the moment a check is deposited and when the bank grants collected fund status.